Federal authorities on Thursday charged three people with former President Donald J. Trump’s social media company is accused of participating in a scheme to make $22 million in illegal profits by trading ahead of a proposed merger with a cash-rich public shell company in the fall of 2021.
The arrests followed a lengthy investigation by federal prosecutors in Manhattan into the securities trading of Digital World Acquisition Group, a so-called special purpose acquisition company. The inquiry focused on Rocket One Capital, a small Miami-based venture capital firm led by Michael Shvartsman.
Federal prosecutors in Manhattan said they have charged Mr Shvartsman and his brother Gerald, who owns an outdoor furnishing store in Miami, with unfair trade practices. Bruce Garelick, a former hedge fund manager who worked at Rocket One, was also charged. He was also a board member of Digital World before resigning last summer.
None of the people arrested are said to have any ties to Mr. Trump or anyone associated with Trump Media & Technology Co., the parent company of his right-wing social media platform, Truth Social, said a person with knowledge of the matter. Di, who spoke. He spoke on condition of anonymity because he was not authorized to speak publicly. It is believed that Trump Media will merge with the Digital World.
Lawyers for the brothers, Grant Smith and Robert Bushell, declined to comment. Karl Schoeppel, a lawyer for Mr. Garelik, did not respond to a request for comment.
An executive at Digital World declined to comment. A spokeswoman for Trump Media also did not respond to a request for comment.
The authorities did not accuse any company of wrongdoing.
The three men arrested will appear before a federal judge in Miami on Thursday. An indictment has not yet been set in federal court in Manhattan.
Rocket One and several people associated with Mr. Shvartsman invested in Digital World about two months before the SPAC went public. Soon after the group’s investment, some Rocket One employees began regularly referring to Digital World as a “Trump SPAC,” as previously reported by The New York Times.
Federal prosecutors in Manhattan said the three men violated nondisclosure agreements not to discuss the pending deal with anyone or buy additional securities based on non-public information about the deal. Officials said these people also told others about the impending deal between Digital World and Trump Media during the trip to Las Vegas and on other occasions.
In the indictment, prosecutors said Mr. Garelik was added to Digital World as a board member in July 2021 because Mr. Shvartsman made a substantial investment in the SPAC ahead of its initial public offering.
The Improper Trading in Securities investigation of Digital World is one of several investigations that have dogged its merger with Trump Media. The clock is ticking for the deal to be completed before September 8, the day when Digital World will be required under its corporate charter to liquidate the $300 million raised in its IPO and return it to existing shareholders.
The Securities and Exchange Commission is investigating whether initial merger discussions between Digital World and Trump Media, which took place before the SPAC went public in September 2021, violated federal securities laws. The SEC, which was also investigating unfair trade practices at Digital World Securities, has not yet signed off on the proposed merger.
SPACs, which are set up to raise money from investors and then find a company to buy, are not allowed to seriously discuss mergers before they go public. Federal authorities are trying to determine whether Digital World’s negotiations with Trump Media were substantive enough that it should have been disclosed before the SPAC sold shares to the public.
The SEC filed a related lawsuit on Thursday against the brothers and Mr. Garelik. The SEC also named Rocket One as a defendant.
In its lawsuit, filed in federal court in Manhattan, the SEC included a text message that Mr. Gelik sent to his daughter shortly after she was named to Digital World’s board. In the text, he said: “Very likely you will be ousted… Your father may be named to the ‘Trump Media Group’ board of directors.”
Trump media executives and some of Digital World’s shareholders have accused the SEC of using the investigation as an excuse for not approving the merger. The deal is seen as key to providing cash to Trump Media and Truth Social, which have emerged as the former president’s main megaphones in the past year.
Federal prosecutors and the SEC on Thursday filed several other insider trading charges, including one for trading ahead of news about encouraging trial results in November 2021 for the pharmaceutical company’s Covid-19 drug, Paxlovid, and a former Pfizer employee. The allegations against his friend were included. ,
“Insider trading is not a way to make quick bucks. This is not easy money. This is not a sure thing. This is fraud,” Damian Williams, US Attorney for the Southern District of New York, said in a statement announcing the filing of the cases.
